The unemployment rate recently inched up to 6 percent, fueling

calls for Congress to "do something" -- other than cutting taxes

and government spending to encourage job-creating economic

growth. Some actions Congress might take could even increase

unemployment, NCPA Senior Fellow Morgan O. Reynolds points out.

Reynolds, recently chief economist for the U.S. Department of

Labor, says that extending unemployment benefits helped raise

unemployment from its boom-time low of 3.9 percent:

   o Extending unemployment benefits -- which has been done

       twice so far -- increased the unemployment rate by 0.2

       percentage points by discouraging wage moderation so that

       people could price themselves back into employment.

   o But U.S. benefits are not so generous as in the European

       Union, where long-term unemployment is intractable -- and

       Germany is debating cutting unemployment benefits to one

       year, while benefits in other EU countries can be extended

       to five years.

A 6 percent unemployment rate is about the post-war average, but

may rise higher, says Reynolds -- even more so if Congress raises

the federal minimum wage:

   o Manufacturing wages have risen to the point that the

       federal minimum wage is about 35 percent of the average --

       but if Congress increased the minimum to half the

       manufacturing wage, employment opportunities would be


   o At its current level, the minimum wage destroys employment

opportunities for prison inmates, for example; as a result, only

about 4,000 of 1.3 million inmates are employed in prison


Barring efforts to sustain unions by increasing coercive measures

-- including minimum wages and collective bargaining -- union

membership erodes in the marketplace, says Reynolds. Workers are

gravitating toward non-union firms because they have the jobs.

Meanwhile, union membership has fallen from 35 percent in the

early 1950s to 8.5 percent in 2001. However, it is 37.5 percent

in the public sector.

Source: "Labor and the Austrian School, an interview with Morgan

O. Reynolds," Austrian Economics Newsletter, Summer 2003, Mises


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Michael F. Denny

SF Small Business Advocates